Options Trading Quotes - Option Trading - Option Trading Strategy 591

Straddle, By engaging in a straddle transaction, buy/sell a call and put at the same strike price, the investor is taking position on the volatility of the underlying security. An in-the-money option not only has extrinsic value butalso some intrinsic value. This system can be risky, because you need a number of small profitable trades to cover one of the losses. Now why would we want to buy both a Call and a Put? Calls are for when you expect the stock to go up, and Puts are for when you expect the stock to go down, right?. You will be buyingone option and selling another, which is commonly known as aspread and is referred to as a single trade. A Call option gives the buyer the right to buy the underlying asset, while a Put option gives the buyer the right to sell the underlying asset. This strategy is implemented by purchasing a call option on a stock while shorting the stock. For example, say Google (GOOG) is trading at $500 and you think it will remain near that price over the next month: sell google (GOOG) $500 Calls for $16 and sell google (GOOG) $500 Puts for $15, both with expirations of about 1 month. If youhad owned the stock naked, then you would have lost threedollars since you owned the stock at $29.00 and it closed at$26.00 on expiration. The most basic options strategy is referred to as the covered call. This strategy can work well when a major anticipated decision is about to be made for the stock: buy-back program, law suite, new technology, earnings reports, presidential election. The closer the call options strike price to the current market price of the stock the greater the level of protection against a price increase, but the greater protection comes at a higher cost. There are a couple of approaches to the market that are popular across many systems. For Example, say you have $1600 and think Google (GOOG) will increase in value: say it is currently trading at $500 a share but you only have enough money to buy 3 shares. Short straddles are purchased if the stock price is not expected to move very much. The investor implementing this strategy will be expecting the underlying stock chosen to stay at or decrease below the strike price. If the price of the stock increases, then the put would expire worthless, but you still benefit from the increased stock price. Making the most from the chosen investment opportunity is the other half. Now, the most money you can loose over the month is the $1 you paid for the put while you still can participate in any upside so as long as the Starbucks (SBUX) is trading above $26 at expiration you have made a profit. As an example, say your stock is trading at $29.00 and you feelthat your stock may trade down a little but still remain in anuptrend cycle. The stock starts to trade down and finishes at $26.00. You do this by your choice of which optionyou sell. Webster's Dictionary defines the term strategy as " 1 a) the science of planning and directing larger scale military operations, specifically (as distinguished from TACTICS) of maneuvering forces into the most advantageous position prior to actual engagement with the enemy b) a plan or action based on this. XYZ won the legal battle! Investors are more confident of the stock and the price jumps to $72. When you trade options, the stakes are raised, making those massive profits even more attainable, but the basics that underlie successful trading in the stock market are the same as those for trading options. The effect ofthis would be to provide you with a little extra premium tocover more downside risk. Long Straddle: This strategy is the opposite of the Short Straddle; an investor will simultaneously buy a call option and a put option on the same stock with the same strike price and same expiration date. You know this will effect Starbucks (SBUX) bottom line so you decide to implement a long straddle because you are not sure which candidate will win. For call options, the option is said to be in-the-money if the share price is above the strike price.

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